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Saving for College with a 529 College Education Plan

College Education Plan-

If you have children that are planning on attending college, you’re probably wondering exactly how you’re going to pay for their tuition, room, board, and all the other costs associated with getting a college education. Fortunately, there are ways to go about it, but you should start saving as soon as possible. One way to get started is by investing in a 529 College Education Savings Plan, so named because it’s authorized by Section 529 of the Internal Revenue Code. Another name for a 529 plan is a qualified tuition savings plan. One of the most attractive features of a 529 plan is the tax advantages of putting money away now for your child’s future education. Following are a few tips for investing in a 529 plan.

What Is a 529 Savings Plan?

college education planA 529 savings plan is a way to save money for your child’s future college education. A 529 plan is administered by an individual college or by a state government. Each of the 50 states has some variety of a 529 plan available some are administered by the state and some are privately administered. One nice thing about a 529 savings plan is that you don’t have to go a college in your home state; you’re free to choose a plan in any states. However, if you go outside your own state you may be forefeiting in-state tax advantages.

How a 529 Savings Plan Works

There are two basic varieties of 529 savings plans (Educational Savings Plans and Prepaid Education Plans). Educational Savings Plans work in pretty much the same way as a Retirement plans like 401k or an IRA. Money is deposited into an account, which is then invested in mutual funds. The amount of money you deposit will grow as the mutual funds increase in value. Prepaid Education Plans work a little differently. Instead of depositing money into a savings account on a regular basis, you sign up with a particular state Prepaid Education Plan and basically lock in a fixed tuition rate. You will then make specific scheduled payments and be ensured of a certain number of semesters of University or Community College depending on the plan you choose. Payments can be anthing from a lump sum to small monthly payments between now and the time your child starts college. If your child decides they don’t want to go to a Public University in that state there are ways to prorate your exchange to a private school or the money can be transferred to a regular Educational Savings Plan, but you will be subject to certain limitations based on the plan terms. Each of these basic plans has a wide variety of variables to choose from.

College Education Plan Tax Breaks

There are definite advantages of using a 529 savings plan to help pay for your child’s education. One of the biggest is that there are tax breaks with this plan–whatever you deposit into a 529 savings plan is tax exempt, as long as you use it for approved educational purposes. The entire amount you put into the plan remains tax exempt from the Federal government, and most state governments, as well. The overriding stipulation is that you let the money stay in the plan until it’s used to pay college tuition.

A 529 Savings Plan Is Convenient

A 529 savings plan is extremely convenient, because you have the option of adding to it at anytime, without a penalty. You can also move the money from one plan to another. Even though the college or a state government manages the plan, you as the contributor have complete control over it. The only time you’d be subject to penalty would be if you used the money for something other than college tuition.

Your Personal Financial Situation Is Irrelevant

It doesn’t matter if your net worth is in the thousands or millions; there is no discrimination when it comes to eligibility for a 529 savings plan. Anyone can invest. The only caveat is that most state governments put a cap of $300,000 on what they’ll manage. This limit only applies to one individual and not to an entire family. If you have more than one child headed to college, you can invest up to $300,000 for each of them–but they must be separate 529 savings plans.

Seek Financial Advice

Because a 529 savings plan can be difficult to understand, you should probably seek the council of a financial advisor before sticking any money into it. An accountant should be able to provide the information you need to determine whether or not a 529 savings plan will work for you. You may also want to talk to a tax attorney, to find out exactly what tax advantages there are with this type of plan.

See Also:

College Savings Accounts

Saving For Your Childs College Education without Breaking Your Budget

Online Degree More Affordable Than on Campus

Kids Going to College? Ease the Financial Burden

Cutting the Cost of College

Choosing an Online College

Save Money – Attend a Community College

Majors for Fiscally Minded Students

Working While in College- Nursing Students

Sky Rocketing College Costs

Education Inflation Way Above Consumer Price Index

The US’s Education Bubble

The Biggest Commodity: The College Degree and Academic Inflation

Credential Inflation: Bachelor’s Degree Not Enough

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